Fairfax India new issue

[gfp]

Press release for Fairfax India

https://www.globenewswire.com/news-release/2024/05/02/2874791/0/en/Fairfax-India-Holdings-Corporation-First-Quarter-Financial-Results.html

 

This PDF is better:

https://www.fairfaxindia.ca/wp-content/uploads/2024_05_May_02-PRFIH-Q1-2024-Press-Release-Final.pdf

Edited May 2, 2024 by gfp

[This2ShallPass]

On 5/2/2024 at 2:23 PM, gfp said:

Press release for Fairfax India

https://www.globenewswire.com/news-release/2024/05/02/2874791/0/en/Fairfax-India-Holdings-Corporation-First-Quarter-Financial-Results.html

 

This PDF is better:

https://www.fairfaxindia.ca/wp-content/uploads/2024_05_May_02-PRFIH-Q1-2024-Press-Release-Final.pdf

Terrible quarter - public equities down 25% and private investments down 6% when Sensex was up 2%. Silver lining, discount is closing. Not exactly the way you want it to happen by BV going down 10% Also, their private investment valuations seem pretty conservative, so less risk of a downside surprise there.

 

IIFL finance involved in something fraud related. they're of course downplaying it but getting banned by the regulator is a clear sign. Not sure why Fairfax doubled down by providing line of credit.

 

Bottom 6 positions all worth only 10% of pf ($270M total, equal to Sanmar). They're all slow growers / bad industries - discount rate ranging from 13 to 28% and growth rates 1.5-5%. Investment thesis on these unclear, just distraction for management.

 

I reduced my position by 30% early this year. BIAL setup is great, I'm waiting for Anchorage IPO to move out of Fairfax India fully. 

 

[Viking]

50 minutes ago, This2ShallPass said:

Terrible quarter - public equities down 25% and private investments down 6% when Sensex was up 2%. Silver lining, discount is closing. Not exactly the way you want it to happen by BV going down 10% Also, their private investment valuations seem pretty conservative, so less risk of a downside surprise there.

 

IIFL finance involved in something fraud related. they're of course downplaying it but getting banned by the regulator is a clear sign. Not sure why Fairfax doubled down by providing line of credit.

 

Bottom 6 positions all worth only 10% of pf ($270M total, equal to Sanmar). They're all slow growers / bad industries - discount rate ranging from 13 to 28% and growth rates 1.5-5%. Investment thesis on these unclear, just distraction for management.

 

I reduced my position by 30% early this year. BIAL setup is great, I'm waiting for Anchorage IPO to move out of Fairfax India fully. 

I do not follow Fairfax India as closely as i follow Fairfax. The big near term issue that i see is IIFL Finance - but this has been out there for months now so it should not have come as a surprise when Fairfax India reported results. 
 

What did surprise me is the explanation of the current issues the founder of IIFL, Nirmal Jain, gave at the Fairfax India AGM (see quote below). The answer he gave might come across as funny to an audience in India. I don’t think it’s the right kind of humour to use when explaining a serious problem to an audience in North America. Hopefully Fairfax uses this as an example internally of probably what not to do in the future.

—————-

“So RBI does (our) audit, and they've been doing it for the last 16 years of our company's existence. And this year, they found a few lapses. And based on that, we're a bit surprised because the order came, which was a complete embargo on our gold loan business. And of course, there were lapses. So I can't say that it's something which is -- we are doing everything which was in full compliance of their master circular.

“But many of these things that we are doing were also industry practice. So maybe I can give analogy. I mean I don't know many of you would have traveled to India there, the traffic rules are hardly followed. The people obviously. Now -- but if you are in Canada, U.S. everywhere, then you see that even if the other side is empty and there's a 3-mile traffic jam, people still won't break the lane because somewhere -- some point in time, regulators enforce the regulations very strictly.

“So what happens that in traffic police officer catch hold of somebody and sort of make him an example. And if we have a view, then I don't think that we can really crib about it, but I'll just talk about it that what happened and how we are going to overcome.”

[nwoodman]

Finally found some time to run some summaries for FIH

 

 

Overview

 

Here are the key points from Fairfax India's Q1 2024 interim report:

Financial Performance:
- Net loss of $293.2 million in Q1 2024 compared to net loss of $51.6 million in Q1 2023. The increase in net loss was primarily due to higher unrealized losses on investments. 
- Book value per share decreased by 10.1% from $21.85 at December 31, 2023 to $19.65 at March 31, 2024.

Investment Activity: 
- During Q1 2024, the company completed the sale of 70.1% of its equity interest in NSE for proceeds of $132.3 million, resulting in realized gains of $117.1 million. The remaining NSE shares were sold in April 2024.
- Net change in unrealized losses on investments of $410.9 million, driven mainly by market price declines of Public Indian Investments. 

 

2. Key Events:
- On March 4, 2024, IIFL Finance was ordered by the RBI to cease gold loan origination due to supervisory concerns, resulting in a 43% decline in IIFL Finance's share price in Q1.  
- Subsequent to quarter-end, Fairfax India agreed to participate in IIFL Finance's rights issue and provide liquidity support along with Fairfax if needed.

 

3.Valuation Impact:
- The fair values of Fairfax India's Private Indian Investments were negatively impacted in Q1, including a decrease in the fair value of Sanmar mainly due to a decline in the share price of its publicly listed subsidiary.
- The fair value of BIAL was relatively unchanged, supported by a transaction in 2023 where Fairfax India acquired an additional 10% equity interest in BIAL at an implied $2.5 billion valuation for the whole company.

 

4.Liquidity:
- Fairfax India's cash and investments provide adequate liquidity to meet its obligations. Cash decreased to $29.4 million at March 31, 2024 mainly due to settlement of the performance fee payable.
- Proceeds from the NSE share sale in Q1 and Q2 2024 provide additional liquidity.

 

In summary, Fairfax India experienced a challenging Q1 with significant unrealized investment losses, though its key holdings like BIAL remain resilient. The company maintains adequate liquidity supported by investment sales.

 

The airport 

 

Based on the information provided in Fairfax India's Q1 2024 interim report, the following key insights can be gleaned about Bangalore International Airport Limited (BIAL):

 

1. Valuation Insight:
The fair value of Fairfax India's investment in BIAL remained relatively unchanged at approximately $1.6 billion as of March 31, 2024 compared to December 31, 2023. This valuation was supported by a transaction in 2023 where Fairfax India acquired an additional 10% equity interest in BIAL from Siemens. The transaction implied a fair value for 100% of BIAL of approximately $2.5 billion.

 

2. Ownership:
As of March 31, 2024, Fairfax India held a 64.0% equity interest in BIAL. A portion of this interest (43.6%) is held through Anchorage, a consolidated subsidiary. This results in Fairfax India having an effective 59.0% fully-diluted equity interest in BIAL.

 

3. Financial Commentary:
The interim report provides some high-level financial information for BIAL for the nine months ended December 31, 2023:

- Revenues increased to $243.0 million from $167.3 million in the prior year period, reflecting higher aeronautical revenues from increased tariffs and passenger traffic.

- EBITDA increased to $158.7 million from $104.9 million, driven by the higher revenues, partially offset by increased expenses related to the new Terminal 2.

- BIAL reported a net loss of $9.0 million compared to net earnings of $5.8 million in the prior period, mainly due to higher depreciation and interest expenses from the operationalization of Terminal 2 during 2023.

 

So in summary, while BIAL's valuation remained steady, supported by a recent transaction, its financial results reflected a mix of positive revenue growth offset by higher costs and financing expenses related to its major expansion with the launch of Terminal 2. The management commentary indicates BIAL expects to see continued growth in passenger traffic.

 

 

[Junior R]

When does everyone think Anchorage Infrastructure will IPO?

[ICUMD]

40 minutes ago, juniorr said:

When does everyone think Anchorage Infrastructure will IPO?

Not seeing this event being on the near term horizon based on inference from the Annual Meeting.  Could be a few years out still.

[SafetyinNumbers]

1 hour ago, ICUMD said:

Not seeing this event being on the near term horizon based on inference from the Annual Meeting.  Could be a few years out still.

I had the exact opposite take. My guess is odds are better than 50% it happens in the next 12 months. Perhaps a few other things too as the election seems to be a catalyst. The below is from the AGM transcript.

 

[Junior R]

added some more here

[Junior R]

Quote

Bengaluru airport to have biz park, new hotels, concert arena

 

Quote

A combo hotel and concert arena will be developed along with the Business Park. The hotel is poised to become one of the largest hospitality establishments in India. “Comprising a total of 775 keys, the hotel will feature the Vivanta brand with 450 keys and Ginger brand providing 325 keys. Anticipated to be completed by the end of 2026, it will further solidify Airport City’s standing as a top-tier destination for both business travellers and tourists,” it said.

https://www.newindianexpress.com/cities/bengaluru/2024/May/27/bengaluru-airport-to-have-biz-park-new-hotels-concert-arena

[Dinar]

1 hour ago, Haryana said:

 

Western folks might be unaware that both Vivanta and Ginger are part of the TATA group. Tata's IHCL is India’s largest hospitality company including the iconic Taj brand.

https://www.ihcltata.com/press-room/taj-ranked-as-India-strongest-brand-brand-for-third-time/

 

Media screams crony on Ambani and Adani because they are from the state of Modi but they never talk much about Tata.

The media will talk about Indian economy being run by state expenditure but the Indian government is divesting and selling business assets to private enterprise. They recently sold Air India to Tata.

 

Connecting the dots, Tata's Air India had recently announced developing a connecting hub at Fairfax's Bengaluru Airport.

https://aviationweek.com/air-transport/airports-networks/air-india-develop-connecting-hub-bengaluru

 

Tata is the largest conglomerate of India.

TCS New York City Marathon has been sponsored by Tata's TCS since 2014.

https://www.espn.com/new-york/story/_/id/9759292/tata-consultancy-services-new-nyc-marathon-sponsor-8-year-deal

 

Parsees are incredible, imagine what Iran would have been had stayed Zoroastrian.  

[ICUMD]

Despite all the good prospects, Fairfax India is one dog of a stock!   

[gfp]

13 minutes ago, ICUMD said:

Despite all the good prospects, Fairfax India is one dog of a stock!   

 

Decent volume today for this one - easy to get a fill on orders for a change.  Get in there!

[hardcorevalue]

I feel like the bagholder the longer I hold this lol! (and keep paying fees!). Getting smoked by the NSE for a while now. The discount to NAV (and I think the airport is undervalued) Doesn’t sound like the IPO is anytime soon though. Love the airport asset, just kind of crazy that this is down by 25% over the better part of a decade. Hard to keep being a cheerleader even with a lower cost. 

[thowed]

Yep, reminds me of that old Yogi Berra line about in theory and in practice...

 

There are some decent Indian Funds for offshore investors that have outperformed NSE & FIH, and while I am a happy FFH holder, & the airport looks great, I just struggle to see how this will play out.  It may do suddenly, but I don't have the same conviction in it as the parent.

[Junior R]

The stock is truly like watching paint dry. I think if you bought this in the last couple years your not to upset as it has gone up in the last two years....The minute we get an IPO and if its over 3b or the assessed value this stock can jump over night...Its closer then if you bought this stock 10 years ago or when ever it IPO at $10...I have been in and out of this stock many times...My latest position I plan on holding until it gets above $17 (close to book value)...The one thing I learned about this stock is when it comes time to buy or sell large amounts it takes days as there is no volume ...

 

If you bought INDA (etf) when this IPO you would be better off..

[SafetyinNumbers]

INDA started outperforming FIH when the NAV discount started expanding. It seems unlikely the discount grows significantly again from here although anything is possible.

 

My key takeaway post FIH AGM was that the conclusion of the Indian election was a catalyst and the stock is now at its weakest point since the AGM.

 

I can see two potential catalysts:

 

1) a transaction with respect to IDBI which will might highlight FIH’s value as the vehicle FFH is contractually required to use for any non-insurance Indian investments. Privatization is supposed to accelerate when the election is over even if they are unsuccessful on IDBI. Execution is a big risk but FIH might get lots of chances to swing. If they are successful, AUM could grow fast. It’s not clear how/if FIH shareholders would participate in the economics.

 

2) Traction on the Anchorage IPO. The recent DIGIT IPO was an interesting exercise. I can see how retail investors will be more excited about one of the best airports in the world than an insurance company they don’t understand. 

 

Between those two events, BV could be $28 in a short period of time, public assets could be the vast majority of investments held and the fees paid might be mitigated by fees earned from investments managed by FIH on behalf of outside investors. 
 

I have a long term view but I think the odds on these catalysts in the next 12 months is pretty high. 
 

For those with meaningful positions who want to liquidate, please call the company and cross the shares with the buyback. 

 

 

 

[ICUMD]

Good points. 

 

Makes sense to hold past the Indian elections and also see the outcome of the IDBI bidding. 

 

Fairfax India has apparently offered an all cash deal, so they are coming in strong and I assume must have a plan in place.

 

OTOH, their private Indian investments, no matter how strong they are (ie BIAL), are not translating into market price very well. 

 

Anchorage seems like a pipedream to me years after their initial proposal.

[TwoCitiesCapital]

I, for one, am ok with the persistent discount. 

 

The historic execution is there on the BV side. The present execution is there on the buybacks and future opportunities side. I have no doubt that the longer term execution will be there as a result. 

 

The discount won't persist forever if BV performance continues, but am glad for the opportunity to increase my ownership via occasional incremental buys and let FIH increase my ownership for me with time as long as it does persist. 

Edited May 31, 2024 by TwoCitiesCapital

[dartmonkey]

4 hours ago, ICUMD said:

OTOH, their private Indian investments, no matter how strong they are (ie BIAL), are not translating into market price very well. 

 

Anchorage seems like a pipedream to me years after their initial proposal.

 

I'm with TwoCities about the persistent discount - the important thing is that the investments are doing well, and if so, the share price will eventually follow, providing for some additional oomph in the meantime via repurchases. So the private investments have to be strong, but the translation into market price doesn't concern me.

 

Anchorage is the same sort of deal - is the airport doing well, or not? It seems that it is. At over 50% of assets, an IPO would be nice, just to take some cash off the table and to allow for other investments (IDBI?), but there are likely to be opportunities to do the same thing with private investors, so maybe we don't have to worry about whether an IPO happens or not. 

[ICUMD]

19 hours ago, SafetyinNumbers said:

 

For those with meaningful positions who want to liquidate, please call the company and cross the shares with the buyback

Has anyone done this?  How does it work and what was the offer?  When I call to Fairfax India contact  number, I get a generic mailbox.

[Crip1]

6 hours ago, dartmonkey said:

 

I'm with TwoCities about the persistent discount - the important thing is that the investments are doing well, and if so, the share price will eventually follow, providing for some additional oomph in the meantime via repurchases. So the private investments have to be strong, but the translation into market price doesn't concern me.

 

Anchorage is the same sort of deal - is the airport doing well, or not? It seems that it is. At over 50% of assets, an IPO would be nice, just to take some cash off the table and to allow for other investments (IDBI?), but there are likely to be opportunities to do the same thing with private investors, so maybe we don't have to worry about whether an IPO happens or not. 

In and of itself, the persistent discount is not nearly as much a concern as is company performance. The same can be said for Fairfax, incidentally, in that I am less concerned about the multiple to book at which it’s selling but more concerned about whether book value is increasing and, assuming so, at what rate. The discount to BV obviously has a positive in that buying back shares by itself increases BV for the remaining shareholders.

 

On FFHI, if we assume the discount goes on for the indefinite future, then the discussion becomes, assuming one wants exposure to this market, whether it’s better to invest in FFHI or one of the India-centric ETFs. We’re ultimately asking ourselves whether FFHI will deliver alpha. My theory is that FFHI performance will be far more lumpy than the ETFs and that, at some point, price and BV will converge which provides a buffer if alpha is not delivered.

 

-Crip
 

[dartmonkey]

7 minutes ago, Crip1 said:

 

On FFHI, if we assume the discount goes on for the indefinite future, then the discussion becomes, assuming one wants exposure to this market, whether it’s better to invest in FFHI or one of the India-centric ETFs. We’re ultimately asking ourselves whether FFHI will deliver alpha. My theory is that FFHI performance will be far more lumpy than the ETFs and that, at some point, price and BV will converge which provides a buffer if alpha is not delivered.

 

Yes. Ultimately, it is alpha that matters; but whatever Greek letter it might be, some volatility around price:value is a bonus, ultimately, for anyone who is prepared to take advantage of dips (this one has been a long one!) and lighten up on climbs. And even for long-term holders who do neither, if the company does it for them. But that would work better if there were a bit more high points…

[SafetyinNumbers]

9 hours ago, ICUMD said:

Has anyone done this?  How does it work and what was the offer?  When I call to Fairfax India contact  number, I get a generic mailbox.

I haven’t done it with Fairfax but I have with other companies. I usually contact IR or VP Corp Dev and ask them who their buyback broker is? I think for FFH it’s RBC or BMO. 

[ICUMD]

12 hours ago, SafetyinNumbers said:

I haven’t done it with Fairfax but I have with other companies. I usually contact IR or VP Corp Dev and ask them who their buyback broker is? I think for FFH it’s RBC or BMO. 

Thanks very much for the suggestion.

[Junior R]

India stock market hits new all time highs